Honda Profit Down on Strong Yen, Weak Sales

Honda Motor Co. said on Oct. 28 its profits slipped in the first half and it cut its full-year forecasts as the yen soared and U.S. and European sales plummeted due to the global financial crisis.

Japan's second largest automaker said its net profit fell 19.1% to 302.9 billion yen (US$2.93 billion) in the six months through September on revenue of 5.69 trillion yen, down 3.5%.

On an operating level, Honda's profit slumped 27.1% to 370.1 billion yen (US$3.57 million) in the first half. For the July-September quarter alone, its net profit plunged 40.9% to 123.3 billion yen on revenue at 2.83 trillion yen, down 4.9%.

"It is foreign exchange rates that will affect our results the most," Honda vice president Koichi Kondo said. "The market is moving dramatically, which has been beyond our expectations."We really cannot predict at what level foreign exchange rates will stabilize."

Japanese companies have been hit hard by the recent sharp appreciation of the yen due to the global financial crisis. A stronger yen makes Japanese exports less competitive and reduces repatriated earnings. The yen, however, eased in Asian trade on Oct. 28, bringing relief to stock market players.

Honda said its earnings were also affected by higher administrative costs and raw material expenses.

In the first half, Honda said that its revenue tumbled across the key developed markets of Japan, Europe and the United States. In Europe, revenue dropped a sharp 9.6% in part due to the weakening euro. But revenue rose by 9.8% in Asia outside of Japan.

"The North American market has been worse than we originally thought, while the impact has spread to Europe, where sales are dropping considerably," Kondo said. "We have to pay close attention to what will happen after the U.S. presidential election, adding that the auto market has often seen chaos before U.S. elections in the past."